British Columbia and the Northern Gateway Pipeline

PDF version: British Columbia and the Northern Gateway Pipeline

Document commented on: BC Outlines requirements for heavy oil pipeline projects, July 23, 2012.

The proposed Northern Gateway Pipeline is proving to be extremely contentious on a number of fronts. It raises important questions about the duty to consult and accommodate indigenous peoples who may be affected by the project; it raises questions about the joint review panel and the role of the National Energy Board (see post here) and the amendments to the National Energy Board brought about by the Budget Bill, Bill C-38, now SC 2012, c 19); and, most recently, the province of British Columbia’s Environment Minister, Terry Lake and Aboriginal Relations and Reconciliation Minister, Mary Polak, have outlined the government of British Columbia’s five minimum requirements that must be met for that province “to consider the construction and operation of heavy oil pipelines within its borders.”

The five conditions are as follows:

  • Successful completion of the environmental review process. In the case of Enbridge, that would mean a recommendation by the National Energy Board Joint Review Panel that the project proceed;
  • World-leading marine oil spill response, prevention and recovery systems for B.C.’s coastline and ocean to manage and mitigate the risks and costs of heavy oil pipelines and shipments;
  • World-leading practices for land oil spill prevention, response and recovery systems to manage and mitigate the risks and costs of heavy oil pipelines;
  • Legal requirements regarding Aboriginal and treaty rights are addressed, and First Nations are provided with the opportunities, information and resources necessary to participate in and benefit from a heavy-oil project; and
  • British Columbia receives a fair share of the fiscal and economic benefits of a proposed heavy oil project that reflects the level, degree and nature of the risk borne by the province, the environment and taxpayers.

This post aims to provide a brief legal analysis of condition # 5 as well as BC’s more general claim to the effect that it is entitled to set the conditions “for the province to consider the construction and operation of heavy oil pipelines within its borders.”

The general proposition

The proposed Northern Gateway pipeline will be an interprovincial work or undertaking within the meaning of sections 91(29) and 92(10)(a) of the Constitution Act, 1867. It is therefore subject to federal jurisdiction and not provincial jurisdiction. The general proposition is that a province will not be permitted to use its legislative authority or even its proprietary authority (s 109 of the Constitution Act, 1867) to frustrate a work or undertaking which federal authorities (in this case the National Energy Board under the National Energy Board Act, RSC 1985, c N-7 and Cabinet) consider to be in the national interest (a.k.a. public convenience and necessity). The relevant authorities are: (1) in relation to the pipeline, Campbell-Bennett v Comstock Midwestern Ltd, [1954] SCR 207 (which, ironically pertains to the original Trans Mountain pipeline), and (2) in relation to the necessary use of provincial Crown lands:  AG Quebec v Nipissing Central Ry, [1926] AC 715 (PC). Given British Columbia’s position one would expect the proponent to make a special effort to ensure that the pipeline and associated terminal facilities are structured as a single undertaking so as to ensure that the entire enterprise falls within federal and not provincial jurisdiction: Westcoast Energy Inc v National Energy Board, [1998] 1 SCR 322.

Condition # 5.

BC is attempting to use its position as a tidewater province to extract rents from the landlocked province of Alberta. BC’s stance is analogous to the position taken by the Province of Quebec in relation to the Churchill Falls Development in Newfoundland although there Newfoundland wanted access to landlines for its electricity rather than access to tidal water. In that case the federal government acquiesced to Quebec using its political muscle and monopoly position and declined to exercise its undoubted constitutional authority to regulate the terms of access to an interprovincial and international market. This case is different; the NEB has long exercised jurisdiction over interprovincial oil and natural gas pipelines (the application of NEBA to interprovincial powerlines is still much more contingent, see s 58.4 of NEBA); BC cannot pass a law imposing a “risk tariff” on the pipeline and Enbridge and shippers on the pipeline are well positioned to resist any political effort by BC to obtain additional financial concessions.  However, the analogy with Newfoundland does serve to underscore an important point which is that the (federal) power to regulate and the (political) willingness to exercise that power are two different things. However, in this case the federal Cabinet has consistently advertised its support for the project beginning with Minister Oliver’s ENGO bashing speech the day before the hearings of the joint review panel commenced (see my earlier post on that).

Is there any legal basis to British Columbia’s claim that it should receive “a fair share of the fiscal and economic benefits of a proposed heavy oil project that reflects the level, degree and nature of the risk borne by the province, the environment and taxpayers.” Put slightly differently, does BC have any legal authority to impose a levy, thus making good its claim to a share of the available economic rent? I think that the answer is “no”.

Governments may take economic rents in a number of ways. The possibilities include bonus payments, royalties, severance taxes, and in this case a pipeline levy based not on the cost of service but simply on the value associated with access that the pipeline provides to world markets. However, there are a number of reasons for concluding that the province of British Columbia has no legal authority to make any of these levies. First, some of these levies (royalties and bonus payments) are associated with ownership of the resource. Alberta is the owner of the resource, not British Columbia. Second, a severance tax is imposed at the point of severance on the value of the resource. The point of severance is in Alberta. BC cannot make a law that is aimed outside the province: Re Upper Churchill Water Rights, [1984] 1 SCR 297. Third, BC may tax activities within the province but if it picks out heavy oil carried in federally regulated pipelines as the object of that tax, that tax will be a colourable device seeking to make a law in relation to a federal subject matter, namely an interprovincial work or undertaking: Reference re Alberta Statutes, [1938] SCR 100. Furthermore, even if such a levy were imposed on intraprovincial movements as well as interprovincial movements (assuming that the market could bear such a levy) there would still be a serious argument that such a levy, if validly structured in this way, would be held to be inapplicable insofar as BC sought to enforce it against a federal undertaking.

In sum, British Columbia’s legal position is weak.

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17 Responses to British Columbia and the Northern Gateway Pipeline

  1. Blair says:

    I would like to seek some clarification here: based on your discussion above the government of BC cannot actively frustrate work on the federal pipeline, however, the law does not appear to reflect the ability of the government to use passive or arms-length means to delay the work.

    Consider the case where the government uses its majority membership on the board of directors of a crown corporation (BC Hydro) to deny theconstruction of the power infrastructure necessary to build and/or maintain the pipeline? This would appear to be in violation of the spirit of the law but to my eye would not appear to be a violation of the letter of the law. Am I correct or off-base?

    If correct would it not be possible for the BC government through “uncivil obedience” to make the pipeline an impossible enterprise?

    Thanks

  2. The risk isn’t really to “the Province” as a whole, but to certain local communities through which the pipeline will run. Those communities have a right to negotiate an arrangement that will balance the potential risk to citizens and the environment, versus the economic benefit in terms of jobs, etc.

    Overall, the pipeline is a winning bet economically, but the precise path of the pipeline should depend on which local communities are most willing to accommodate it. Local governments and even individual property owners should have leverage at the bargaining table in working this out.

    What Christy Clark’s government is doing, on the other hand, just seems like extortion.

  3. Nick says:

    Much of the gateway pipeline will cross BC Crown land. As a landlord, can BC simply not give them the right to use the land like any other landowner? I’m not sure compulsory purchase works with crown land.

    Also, with regard to Churchill Falls, I think the more interesting development was the Federal government’s recent agreement to provide loan guarantees for the proposed Lower Churchill Falls maritime link to Newfoundland and on to Cape Breton. So there is a precedent for the federal government paying to keep bickering provinces happy.

  4. S. T. Munro says:

    It’s easy for Alberta, Saskatchewan and other largely landlocked provinces to dismiss B.C.’s claim. None of you have a coastline which is central to the entire nature of your province.

    B.C.’s coast is not just an economic highway for tankers, it’s both a significant food resource as well as a tourist resource.

    This discussion is probably moot anyway, as it looks likely that the B.C. NDP will be the provincial government a year from now and its position is not an equivocal one — No to Northern Gateway. Period.

  5. Rollin says:

    With grain prices hitting the stratosphere and likely pouring billions extra into Sask, I would suggest both Redford and Christy conspire to put a tariff (legit share of profits) on each tonne of grain moving through to port. Forget bitmen – it can stay in the ground for another 1000 years and not rot. Try that on a bumper grain crop. Then, if that works out, perhaps Ms. Christie could try a tax on bitumen – perhaps in 2112 when the world really needs it and Ms Redford has long ‘left the building’. Live on Ms Christie – always did love those cookies.

  6. JB says:

    Hi, interesting article, as a non-legal professional in the energy sector I am wondering the following: it has been mentioned in the media that British Columbia could either withold some of the provincial building permits required for facilities etc. or even possibly withold BC Hydro electricity required to support the pumping stations on the pipeline, all as a means to extract what they want from this situation and put pressure towards the economic concessions. Would BC have a legal basis to do so under the ‘provincial jurisdiction’ excuse, or instead if the project is deemed in the ‘national interest’ could the feds overrule that (force them to supply power, etc.)? Perhaps it’s not a simple question/answer, but I am curious regardless. No doubt will be a lot of legal fees racked up over this. Thanks!

  7. Ann Swann says:

    Tho’ I’m stricken to learn that Alberta and the Feds can tear up our wilderness with legal impunity ,this still doesn’t answer the oil tankers in Hecate Strait problem.

  8. Nigel Bankes says:

    Responses: July 27.

    Thanks for all of your responses; I thought that I would put them all in one comment to avoid cluttering up the site.

    Blair and JB: questions re BC Hydro (BCH)

    My off the cuff response is this. BCH as well as being a Crown corporation is a public utility regulated by the BC Utilities Commission. As a public utility it has a duty to provide service on a non-discriminatory basis to those who are prepared to pay. And if push comes to shove Enbridge should be able to get an order to provide service on just and reasonable terms. The Minister of Energy can’t just whisper to BCH “no power to Enbridge”. True, the province might pass a “No Power for Enbridge Act” but that would look a lot like a colourable attempt to make a law designed to frustrate an interprovincial work or undertaking.

    Nick: compulsory purchase re Crown lands

    There are really two questions here: (1) can the feds allow\require the taking of provincial Crown land for an interprovincial pipeline; (2) if they can, have they done so?

    As to the first, the answer is yes; see the Nipissing case referred to in the blog. Here’s the link: http://www.bailii.org/uk/cases/UKPC/1926/1926_39.html I have just re-read it; it’s nice and short and it does stand for the proposition for I cited it for.

    As to the second, the answer is also yes: s. 2.1 of NEBA provides that “This Act is binding on Her Majesty in right of Canada or a province.” And s. 77 says (I paraphrase) that Crown land may be taken for pipeline purposes but only with the consent of the Governor in Council (aka the federal cabinet). The latter is an important qualification.

    ST Munro: easy for landlocked provinces

    True enough; but we’re downstream from you on the Peace River – and the Peace Athabasca Delta will likely never recover from BC’s unilateral decision to build the Bennett dam; another example of the federal government having the constitutional power\jurisdiction to act but failing to do so. Two wrongs don’t make a right, but the example does show the different ways in which we are each vulnerable to the other. In the case of the Bennett dam there was no federal assessment that the project met a public convenience and necessity test for Canada as a whole.

    Anne: Hecate Strait

    You can probably guess the answer; that’s federal too.

    Nigel

  9. Nigel says:

    I am also a non legal individual but it seems to me the environmental “liabilities” Ms Clark is concerned about will be covered by industry and the Feds; so she will not be out of pocket there in the event of a disaster. The fair share argument maybe partially met on the ground depending on the deals done between Enbridge, local bands and construction and operating jobs. Agan this is within the purusal of the NEB to determine whether there is a reasonable benefit. Lastly that she will be compensated through the Federal Transfer scheme which legitimately and legally takes money from “have” provinces to “have not” provinces based upon a recognized formula as a opposed to one based on geographical opportunism.

    No one can deny BC’s concerns but there are mechanism’s built into the country’s legal/poltical framework specifically intended to determine the common good over the objections of vested interest individuals, or groups, including Provinces – e.g transcontinental railway, St. Lawrence Seaway, TransCanada Pipeline etc.

  10. Graham Martinelli says:

    Thanks for the great post Professor Bankes. It’s a luxury to read a cogent legal analysis beyond the usual political posturing.

    I agree that Premier Clark’s request for royalties is on extremely tenuous legal ground, but might there be a way for BC to argue that they have the right to shut down oil transport through their territory completely? And if so wouldn’t this give them the bargaining position – if not with Alberta, then with Enbridge and their partners directly – to negotiate a monetary compensation similar to the royalties?

    I think there’s room to re-examine the interprovincial oil transport beyond the existing jurisprudence. If a power-line fails chances are the only impact will be a power outage.  If a railway track or section of highway gets washed out then traffic is stopped for a short period of time.  If a pipeline is breached near a river, or a tanker runs runs aground in a narrow passage entire industries and cultures can be harmed irrevocably. This potential for catastrophe presents a real risk that is absent from the other activities contemplated under section 92(10) of the Constitution Act, 1867. Further, while Campbell-Bennett v. Comstock Midwestern Ltd. unequivocally states that interprovincial pipelines fall under federal authority via 92(10) it does so in relation to a discussion based on Mechanic’s Liens. There is no discussion of the environmental/economic risk assumed by the province in the decision. This may have seemed logical in 1954, or incidentally in 1961 when construction began on the WAC Bennett Dam, but nearly sixty years have passed in which time Canadians have become more aware of the impact of these types of projects both on the environment itself and on the various economic activities the environment sustains. It would seem that a precedent that neglects this issue is inadequate for our contemporary discussion.

    Forgive me if these are amateur arguments – I can claim to be nothing more than that at this point – but could the BC government impose an oil transport moratorium in the north by virtue of 92A(1)b as a forestry conservation effort? Or, perhaps a R v. Crown Zellerbach effort based around environmental protection legislation? And if either, or another resulted in BC having the ability to shut down oil transport through their territory wouldn’t that give the BC government a fait accompli (if they’re the BC NDP), or a silver bullet for further negotiations (if they’re the BC Liberals)?

  11. David Foster says:

    It seems to me that there is leverage for BC to extract additional revenue from the Crown land that the pipeline will occupy. Should not the price of the land be increased to reflect the changes to value of the surrounding land? Are there any rules about much BC can charge (I would think that as with a private landowner, the province has leeway in setting the price.)

  12. Michael says:

    An interesting discussion. One of the things I was interested in was the desire of Enbridge to continue with the pipeline in the face of local and provincial opposition. If BC continues with its “no money – no pipeline” stance (despite real or unenforced federal support and jurisdiction) could a prudent board of directors proceed with the pipeline? Wouldn’t they be better off to look at other investment opportunities? Enbridge, like many large oil companies, has assets in several jurisdictions. This pipeline is just one of many investment opportunities they evaluate on an annual basis. To this point, BC’s environmental concerns are even more persuasive in the face of the Enbridge Kalamazoo River spill (which I believe is still not fully remediated.) Furthermore, Enbridge’s assurances that they are “environmental good guys” seems a bit disingenuous considering they knew about the problems with the Kalamazoo pipeline before it ruptured. Also the “just trust us, we learned our lesson” argument they advance is a bit like a George Bush speech – a strong start but difficult to believe when thought through. BC would be well to ask why is their coast line different from Michigan’s riverbanks? I believe that BC does bear significant environmental risk – just ask people living on the Gulf Coast of Mexico or residents of Valdez Alaska. When oil spills it can take decades to clean up. Also, relying on an oil company to clean up any mess it makes is very close to the fox guarding the hen house. Even after touring Suncor’s impressive restored mine site the government of Alberta (through the AB Environment) still hasn’t issued a final certificate of restoration. So if we can really trust oil companies to not pollute (or fix what they wreck), why hasn’t mighty Suncor, with all its financial muscle gotten the thumbs up from AB Environment? My point is that you can’t 100% trust an oil company to fully remediate the land it pollutes – they are a private enterprise after all.

    I guess I am also curious to hear you comments Mr Banks on any possible impact delays to the Enbridge pipeline could have on pending LNG development projects, and the necessary pipelines.

  13. Rodney Smelser says:

    “I am also a non legal individual but it seems to me the environmental “liabilities” Ms Clark is concerned about will be covered by industry and the Feds; so she will not be out of pocket there in the event of a disaster. ”

    This statement is one I must take issue with. Once the tanker has left the docks, Enbridge is basically off the hook, unless it could be proven than they knowingly filled a tanker that was on the point of imminent failure. Once the ship pulls away, the liability for any spill rests with the tanker company (Liberian, Panamanian, etc.) with a limit of $140 million. An international tanker fund can also be liable for up to $1.3 billions. Even that larger amount could easily be dwarfed by the costs of a cleanup and compensation in stormy waters of the BC north coast and Haida Gwai.

    Who would pay beyond that? The assumption that Ottawa would provide adequate compensation to people whose livlihoods were destroyed is just an assumption. There can be little real doubt that the British Columbia Government would be bearing substantial additional expenditures, and receiving less tax revenues, in the region once fishing, tourism and other means of livlihood were destroyed.

    There’s a serious problem with the overall incentive/disincentive structure of this project. Those parties (Alberta and Enbridge) who stand to receive rewards and be granted managerial authority over the construction and operation of the project do not bear the environmental risks and associated financial consequences. Therefore it’s in their interests to build and operate the project at higher risk levels that meet their financial ambitions. After all, any “unfortunate” spills and the financial losses they generate will be someone else’s problem.

    One small example of operating at higher risk levels may serve to illustrate, taken from the blog of Dr. Gerald Graham of Victoria, BC:

    “In Prince William Sound, there are five escort tugs plus a salvage tug available 24/7. Enbridge is proposing two escort tugs, and there are no salvage tugs along the BC coast.”

    http://bcmarine.blogspot.ca/

    Another, of course, is the Federal Government’s recent budgetary decision to close down its oil spill response centre in Vancouver and transfer that work to Montreal, an action so cavalier it’s almost beyond belief.

  14. Rodney Smelser says:

    I would like to add a second link, this time to a report prepared by the UVic Environmental Law Centre.

    http://www.elc.uvic.ca/press/documents/2010-02-06-Tanker-Spill-Financial-Vulnerability-Assessment_Jan15%2011.pdf

    Writing in 2010 Matthew Boulton found that compensation for any spill at sea would be inadequate and that taxpayers would indeed be on the hook.

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